Stapled securities

Stapled securities are created when two or more different securities are legally bound together so that they can't be sold separately. Many types of securities can be stapled together. For example, many property trusts have their units stapled to the shares of companies with which they are closely associated.

Although the stapled security must be dealt with as a whole, the individual securities that are stapled are treated separately for tax purposes. For example, if a share in a company and a unit in a unit trust are stapled:

the owner continues to include dividends from the company and trust distributions from the trust separately in their income tax return

the share is a separate capital gains tax (CGT) asset from the unit, so capital gains and losses are determined separately for each asset.

Cost base calculations

Because each security that makes up a stapled security is a separate CGT asset, you must work out a cost base and reduced cost base for each of them. If you acquired the securities after they were stapled (for example, you bought the stapled securities on the Australian Securities Exchange), you do this by apportioning, on a reasonable basis, the amount you paid to acquire the stapled security (and any other relevant costs) between the various securities that are stapled.

One reasonable basis of apportionment is to base it on the portion of the value of the stapled security that each security represented. The issuer of the stapled security may help you to determine these amounts.

Example

On 1 September 2002 Cathy acquired 100 JKL stapled securities, which comprised a share in JKL Ltd and a unit in the JKL Unit Trust. She paid $4.00 for each stapled security and, on the basis of the information provided to her by the issuer of the stapled securities, she determined that 60% of the amount paid was attributable to the value of the share and 40% to the value of the unit. On this basis, the first element of the cost base and reduced cost base of each of Cathy's shares in JKL Ltd is $2.40 ($4.00 × 60%). The first element of the cost base and reduced cost base of each of Cathy's units in JKL Unit Trust is $1.60 ($4.00 × 40%).

End of example

If you acquired your stapled securities as part of a corporate reorganisation, you will, during the restructure, have owned individual securities that were not stapled. The cost base and reduced cost base of each of these securities depends on the specific terms of the stapling arrangement.

The stapling does not result in any CGT consequences for you, because the individual securities are always treated as separate securities. However, as the example below demonstrates, there may be other aspects of the whole restructure arrangement that will result in CGT consequences.

Example

Jamie acquired 100 units in the Westfield America Trust (WFA) in January 2003. Immediately before the merger of WFA with Westfield Holdings Ltd (WSF) and Westfield Trust (WFT) in July 2004, the cost base of each of his units was $2.12 (total cost base = $212 ($2.12 × 100)).

Under the arrangement Jamie's original units in WFA were firstly consolidated in the ratio of 0.15 consolidated WFA unit for each original WFA unit. After the consolidation, Jamie held 15 consolidated WFA units with a cost base of $14.13 ($212 ÷ 15) each. There are no CGT consequences for Jamie as a result of the consolidation of his units in WFA.

Jamie then received a capital distribution of $1.01 for each consolidated unit he held.

CGT event E4 happens as a result of the capital distribution. Consequently, Jamie must reduce the cost base of each of his consolidated WFA units by $1.01 to $13.12.

The capital distribution was compulsorily applied to acquire a share in WSF and a unit in WFT. The first element of the cost base and reduced cost base of Jamie's new units in WFT is $1.00 and $0.01 for each new WSF share.

The units and shares were then stapled to form a Westfield Group security. There are no CGT consequences for Jamie as a result of the stapling of each consolidated WFA unit to each new WFT unit and WSF share.

Jamie holds 15 Westfield Group Securities each with a total cost base of $14.13, calculated as follows:

Element

Cost base (initial)

WFA unit

$13.12

WFT unit

$1.00

WSF share

$0.01

Total

$14.13

End of example

Disposing of a stapled security

When you dispose of a stapled security, you must apportion the capital proceeds across the individual securities in the stapled security and then work out whether you have made a capital gain or loss on each security.

Note: Specific rules apply to the disposal of certain types of securities such as traditional securities.

Example

On 1 August 1983 Kelley purchased 100 shares in XYZ Ltd for $4.00 per share. In August 2002, Kelley was allocated 100 units in XYZ Unit Trust under a corporate reorganisation of the XYZ Group. The units were acquired for $1.00 each, with the funds to acquire the units coming from a capital reduction made to her shares. At that same time, Kelley's shares in XYZ Ltd and units in XYZ Unit Trust were stapled and became known as XYZ stapled securities.

Kelley disposed of all of her XYZ stapled securities on 1 March 2018 for $8.00 per security. On the basis of the information provided by the issuer of the stapled securities, Kelley determined that of this amount 70% or $5.60 per share ($8.00 × 70%) was attributable to the value of her XYZ Ltd shares and 30% or $2.40 per unit ($8.00 × 30%) to the value of her units in the XYZ Unit Trust.

Kelley must account for the sale of each of the elements (shares and units) of the stapled securities separately.

As Kelley acquired her XYZ Ltd shares before 20 September 1985, any capital gain or loss she makes on the disposal of these shares is disregarded.

Kelley made a capital gain of $1.40 per unit ($2.40 − $1.00) on the disposal of her units in the XYZ Unit Trust. As Kelley owned those units for more than 12 months, she may choose to apply the CGT discount to further reduce her capital gain after applying any capital losses.

End of example

Scrip for scrip rollover and stapled securities

Scrip for scrip rollover relief enables a shareholder to disregard a capital gain they make from a share that is disposed of as part of a corporate takeover or merger if the shareholder receives a replacement share in exchange. However, scrip for scrip rollover is only available when the original and replacement interests being exchanged are of the same type.

If shares are exchanged for stapled securities comprising shares and units, scrip for scrip rollover is only available to the extent that the shareholder received replacement shares (provided all the other conditions for rollover have been satisfied).

Stapled securities are created when two or more different securities are contractually bound together so that they cannot be sold separately. If you own stapled securities, you need to be aware of the possible capital gains tax implications.

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